Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. DGT Holdings Corp. (27748) 10-Q published on Dec 10, 2012 at 3:47 pm
Reporting Period: Oct 26, 2012
The Company’s Board of Directors approved the early termination and cancellation of outstanding and exercisable options for four former officers, directors and employees, effective November 19, 2012. The total options cancelled were for 44,480 shares, of which 24,800 options had exercise prices at or below the closing price of $12.85 on October 8, 2012 and 19,680 options had exercise prices that were above $12.85. The net value of the in-the-money options is $119. This amount was paid to the holders of the cancelled options. Out-of-money options were cancelled without a cash payout to the former option holders. After this cancellation, 98,088 stock options remain outstanding.
On August 16, 2012, after obtaining the required two-thirds vote approval by its shareholders, the Company completed the sale of its Power Conversion business (the “Power Conversion Business”) operated by RFI Corporation (“RFI”) to EMS Development Corporation (“EMS”), a New York corporation and an affiliate of Ultra Electronics Defense, Inc. (“UEDI”), pursuant to the asset purchase agreement dated as of June 6, 2012, by and among UEDI, the Company and RFI. In consideration for the sale of the Power Conversion Business, EMS paid an aggregate of $12,500 in cash. $1,250 of such amount is being held in escrow to serve as security for payments in satisfaction of certain of the Company’s and RFI’s indemnification obligations and $237 is being held in escrow to cover any potential net working capital adjustment. The working capital adjustment is expected to be $480 unfavorable to the Company and is reflected as a reduction to the escrow cash balance, thereby netting $1,007 (classified as restricted cash in the accompanying financial statements). The Company incurred $709 of expenses (primarily severance and legal costs) related to the sale which have been included in the computation of gain on the sale. The Company retained the RFI facility and entered into a lease with EMS. The lease has a term of 5 years, with payments of $33 per month net to RFI, terminable by EMS, as the tenant, upon 30 days prior written notice. See Note 2 of the Notes to the Unaudited Financial Statements in this Quarterly Report on Form 10-Q for additional information.
On November 3, 2011, the Company sold Villa Sistemi Medicali S.p.A. (“Villa”), its Italian subsidiary, which comprised the Medical Systems Group. It is reported as a discontinued operation in the financial statements of the Company and prior periods have been restated. See Note 2 of the Notes to the Unaudited Financial Statements in this Quarterly Report on Form 10-Q for additional information. The Company retained the building in Italy, housing Villa’s operations, which is subject to an initial six year lease with Villa and an option for a subsequent six year period. Under the terms of the lease, the Company will receive 335 thousand euros in annual rent, payable quarterly. The rent may be adjusted annually for changes in the consumer price index, as specified in the lease.
Rental income for the first quarter of fiscal 2013 was $189, which includes the RFI building since its sale on August 16, 2012, as well as the Villa building in Italy, which was retained after the November 3, 2011 sale of our Villa Sistemi Medicali business in the prior fiscal year. Through the date of the sale of the Power Conversion Business, the rental income and building costs related to this lease and underlying property were classified as General and Administrative expenses because the rental activities were not the Company’s primary business activities. After the sale of the Power Conversion Business, the Company had no other operations and, as such, this rental activity as well as the RFI rental activity became the Company’s primary business activity. Accordingly, rental income is being reflected as Sales and building expenses are being reflected as Cst of sales in the accompanying financial statements and prior period financial statements will reflect a reclassification of such amounts from General and Administrative expense to Sales and Cost of sales to be comparative to the current period presentation. As Villa was not sold and the lease did not commence until the second quarter of fiscal 2012, the first quarter of fiscal 2012 does not have any such rental activity.
Cash Flows from Operating Activities – For the three months ended October 27, 2012, the Company utilized $1,577 of cash from operations, compared to a use of $188 in the comparable prior fiscal year period. The first quarter of fiscal 2013 includes the operating losses from continuing operations, as well as the operating loss experienced by RFI prior to the sale of its Power Conversion business. In addition, there was a reduction in accrued expenses, due to payments made from continuing operations related to fiscal year 2012 activities.